Minneapolis apartment transactions running hot

Apartments at 2716 W. 44th St. sold for $2.42 million, a value of $161,000 per unit. Photo courtesy of CBRE Multifamily

The metro is on track to see a third year of record-setting dollars for apartment transactions.

Colliers Vice President Ted Bickel said he’s seeing an influx of investment from the coasts and private equity firms.

“Minneapolis is seen as a favorable apartment market for national buyers,” said Mark Ruff, the city’s chief financial officer, at a meeting in late August.

Ruff said apartments are selling quickly and selling at high values, as payouts from alternative investments look less attractive.

“You could buy a U.S. treasury and get one-and-a-half percent return, or you could buy an apartment building and get a four or five percent return,” he said.

Apartments long sold for about $100,000 per unit, he said, but new higher-end apartments have recently sold for $300,000 per unit.

“That’s an extreme example, but overall, the market has increased,” he said.

One of the priciest sales took place last year at the Whole Foods-anchored 222 Hennepin apartments, which Colliers reports sold for $91.45 million. The Walkway at 1320 W. Lake later sold to JP Morgan for more than $53 million, less than two years after the building opened.

Abe Appert, senior vice president at CBRE, said national investors are interested in projects of 150 units or more. He said investors are attracted to Minneapolis’ job market, education and income levels, which they correlate with a lower-risk buy.

According to Colliers, Minneapolis-St. Paul’s unemployment rate of 3.4 percent is one of the lowest in the country. The workforce ranks 11th in the country in terms of education (41 percent have a bachelor’s degree or higher) and average annual household income is $69,000, which is 29 percent above the national average.

Bickel said one concern in recent years relates to the potential increase in interest rates, but said he doesn’t see any major hurdles to the apartment market in the near future.

“There is a little bit of a national sense that things are slowing down, but we haven’t seen it here,” Appert said. “I do think it will taper off somewhat.”

Recent Minneapolis apartment sales include the 12-unit Francia at 2222 Girard Ave. S. for $2.6 million, and a 15-unit brownstone at 2716 W. 44th Street for $2.4 million.

Maven Real Estate Partners recently acquired buildings including the 48-unit President Studios for $4.1 million at 2300 Nicollet Ave. and the 102-unit Laurel Curve Apartments for $3.35 million at 15th & Laurel, reports Colliers. Maven Director of Acquisitions Nick Peterson said they opted for well-located buildings with a good price.

“The workforce is really strong here,” he said.

He said they plan to add value to the buildings by improving them, which would likely mean rent increases.

“We’re going to have to, just because of the amount of money for rehabbing spaces,” he said.

Ruff said rising apartment sale prices are putting pressure on rents and the supply of affordable housing.

Rents  have risen at another 42-unit apartment building that recently sold for $10.9 million at 3101 E. Calhoun Pkwy. Rent increases at Calhoun Shores caused some residents to move out, including Bill Remmer, a 101-year-old longtime resident.

One Calhoun Shores resident who requested not to print her name said new management is a bit stricter, and tenants can no longer place grills on the balconies. She said her rent has increased by about $100 per month. For those who sign new leases, she said, remodeling work extends to features like cupboards, flooring and paint.

“This is a beautiful building. … If you can afford it, it’s definitely worth being here,” she said. “It’s not like they’re raising rent without offering something in exchange.”